Why SocialFi Was Built on a Misreading of Its Own Medium

On what McLuhan's media theory saw coming

Hello

As a writer, I have been pleasantly amazed by what Substack has become over the past few years. It’s not so much what the platform chose to do that made me stick around as what it chose not to do. Substack doesn’t crowd my screen with engagement metrics or algorithmic noise. It doesn’t turn every interaction into a performance. Each time I open it, I see a clean surface to write on, discover people who align with or oppose my thoughts, and communities I feel like engaging with in some cases or ignoring in others. In the era of short-form content with even shorter shelf lives, platforms like Substack choose the path that slowly builds trust between a creator and a consumer.

It’s this restraint that I find extremely rare in most social networks. This phenomenon becomes clearer when you take a step back and look at other platforms.

I find most of them suffocating with metrics thrown all over the screen, including likes, shares, view counts, and boosted replies. All of these factors collectively determine what you see in your feed. The platform has already decided what the content means, so there’s nothing left for you to decide. You stop participating and start performing. The medium eventually eats itself with too much optimisation.

In today’s guest piece, Anderl makes this argument, albeit with much better examples. He uses McLuhan’s hot-and-cool media framework to explain why SocialFi collapsed, why NFT culture evaporated, and why the platforms that actually work are the ones that know where to let money in without letting it take over.

Onto the story,
Prathik

There is a sentence McLuhan wrote in 1964 that has been quoted so often it has lost most of its meaning. The medium is the message. By now, it sounds like the kind of thing you put on a tote bag. But if you stop and read it as a working diagnostic rather than a slogan, it does something useful, especially for anyone trying to understand why so many recent attempts to fuse social networks with finance have collapsed in slow motion.

McLuhan’s actual argument was narrower and stranger than the slogan suggests. He thought that every medium reshapes the people who use it, not through what it says, but through the shape of the signal it sends. A medium that delivers a finished, high-resolution signal turns its users into receivers. A medium that delivers a partial, low-resolution signal forces its users to fill in the gaps, and in doing so, they become participants. He called the first kind hot and the second, cool.

Print is hot because the page is fully written. Radio is hot because the broadcast is fully produced. A lecture is hot because the speaker controls the signal. By contrast, a telephone call is cool because voice alone carries too little information, and the listener has to construct the missing context. A cartoon is cool because the brain finishes the drawing. Television, in McLuhan’s analysis, was cool because the early signal was so low-resolution that watching required constant active reconstruction. He thought, controversially, that this is why television felt addictive in a way that cinema did not.

The point that matters here is not the specific examples, which date badly, but the underlying claim. The temperature of a medium predicts the kind of behaviour it produces. Hot media produce consumption. Cool media produce participation. And, crucially for what comes next, you cannot turn one into the other without changing what the medium fundamentally is.

What’s This Got to Do with Social Networks?

In McLuhan’s terms, most of what we call social media is cool. A tweet is a fragment. A photo without context is a fragment. A ‘like’ is a fragment. None of these are finished signals. Their meaning emerges only through others’ participation, replies, reposts, threading, and association. A post without engagement is barely a thing. A post with two thousand replies becomes something else entirely, even though the original content has not changed by a single character. This is exactly the McLuhan signature of a cool medium: the artefact is incomplete on arrival and gets completed through use.

This is also why social networks feel the way they do. They are not content delivery systems. They are participation engines that happen to look like content from the outside. The platforms that have understood this, even without ever reading McLuhan, have flourished. Most platforms that tried to professionalise their participation and deliver finished signals to passive consumers have drifted into irrelevance.

The interesting thing is what happens when someone tries to add an economic layer to a cool medium. This is where SocialFi enters the story.

What Did SocialFi Try to Do?

The promise of SocialFi was elegant on paper. The argument was that social capital is real economic value. People generate it constantly, but the platforms capture it all. If we could put social acts directly on a market, then the people who actually create the value would also capture it. Each follow becomes a stake. Each post becomes a tradeable asset. Each connection has a price. The result, in theory, would be a social network that is also an economy, where reputation has a market and creators get paid in real time for the attention they generate.

For a few weeks in late 2023, with Friend.tech, this looked like it might be a real category. People bought and sold each other’s keys. Influencers commanded thousands of dollars in opening prices. The interface looked like a social network and behaved like a brokerage account. Other projects followed quickly, each promising a slightly different version of the same logic. Stamps, gated chats, social tokens, attention markets, and on-chain creator economies. The pitch decks were everywhere.

Then the whole category collapsed. Friend.tech faded. The follow-on projects mostly never reached escape velocity. Token prices crashed and never recovered again. By 2024, SocialFi had become a slightly embarrassing phrase that founders avoided in their next deck.

The standard explanation is that it was a speculative cycle, that people were there for the gains and left when the gains stopped. This is true but shallow. Speculation cycles do not explain why participation collapsed in the underlying social product. People did not just stop trading the keys. They stopped posting, reading, and showing up. The social activity died, along with the financial activity. Why?

The McLuhan Reading

The deeper diagnosis is that SocialFi did not fail because of speculation. Speculation was the symptom, not the cause. The problem was that the entire category was built on a misreading of its own medium.

Social networks are cool media. Their value lies in the fact that participation completes the signal, and that meaning accumulates through repeated low-resolution acts whose significance becomes visible only over time. SocialFi took that medium and replaced its constitutive signal, the social act, with a high-resolution one: a price.

The moment you put a real-time, visible, tradeable price on a ‘follow’ or a post, you have not added an economic layer to a social medium. You have replaced the medium. The new artefact is a fully resolved signal. There is no gap to fill in. The ‘follow’ no longer means anything ambiguous. It means this exact dollar amount right now. And once a signal is that resolved, the rational response is no longer participation. The rational response becomes allocation.

This is why Friend.tech, in its own internal logic, was not a social network. It was a Bloomberg terminal for micro-reputation, with a social network-shaped interface on top. Users were not posting. They were trading. The fact that the trades happened to be on each other’s identities did not make the activity social. It made the activity a financial one that was using social vocabulary as the skin. And once the financial dynamics turned (when prices stopped rising, when the obvious arbitrages closed, and when speculation became less profitable), there was no underlying social medium left to fall back on. The social layer had been consumed by the financial layer at the moment of creation.

This is what McLuhan would have predicted. Hot signals do not coexist with cool media. They replace them. You cannot have a partial, ambiguous, participation-driven act when one of the simultaneous attributes of that act is its current market price, updated in real time, visible to everyone. The price wins. It always wins, because it is more resolved than anything else on the screen.

The early SocialFi designers thought they were building a social network with an economy underneath. But what they were, in fact, building was a market with a social aesthetic on top. The category failed not because of excessive speculation, but because it had quietly become a hot medium and was still being marketed as a cool one.

Why This Matters beyond Crypto

It would be tempting to read this as a niche post-mortem on a niche product category. But the same logic applies far more broadly, and it explains a pattern in platform history that goes back decades.

Cool media die when they get too hot. This is not a metaphor; it is a recurring failure mode. Platforms that begin as low-resolution participation engines tend to add features that raise their resolution over time. Think of verified accounts, engagement metrics that are visible to everyone, creator funds that pay per view, and algorithmic ranking that shows you exactly how well your post performed. Each of these additions seems harmless or even helpful. But collectively, they describe a slow thermal drift from cool to hot. The medium gets clearer, the signals become more finished, and at some point, the user shifts from participating to performing, and from performing to consuming the performance metrics, and then increasingly stops showing up at all because there is nothing left to fill in.

This is why platforms that look unstoppable at peak engagement often turn out hollow a few years later. They have removed themselves from the regime where they actually generated value. Twitter circa 2012 was cool. Twitter circa 2024 is mostly hot. The drift is not anyone’s fault in particular. It is the natural pull of every metric, every monetisation layer, and every product team trying to make the signal sharper. Hotness is what optimisation looks like, applied to a medium that does not benefit from being optimised.

SocialFi made this same drift in fast-forward, compressed into months instead of decades. By starting with the hottest possible signal, a real-time market price, it skipped the entire cool phase that gives a medium its initial gravity. There was nothing to drift away from. It was hot from the first day, and it died quickly because hot media without distribution moats die quickly.

The Way Out: Condensation Points

If you accept this diagnosis, an obvious question follows. Does this mean that any attempt to fuse social participation with capital is doomed?

No, because there is a third option that early SocialFi missed entirely. You can leave the medium cool and let capital condense at specific points within it, rather than dissolving capital into the medium itself.

The metaphor is borrowed from physics. In a fluid that stays mostly gaseous, there are specific local conditions under which droplets form. The droplets are not the gas. The gas is not the droplets. Both coexist, and the interesting thing is the geometry of where condensation happens. The bulk of the medium remains in its original state, while a small number of points become dense, liquid, and load-bearing.

Cool media can work the same way. The base substrate stays cool. Most acts in the medium remain low-resolution, ambiguous, and participation-driven. But at chosen, specific moments, capital is allowed to condense out of the social substrate and become real, financially anchored, weight-bearing. Crucially, these condensation points are not the medium. They are local intensifications inside it. The rest of the medium is left alone.

I think this is the correct way to read certain platforms that quietly worked while SocialFi did not. Substack is a cool medium for writing. The writing itself is fragmentary, ongoing, accumulative, and completed by readers who reply, forward and quote the posts. Capital condenses at one specific point: the recurring subscription. That subscription is a hot signal, an explicit recurring price, but it is structured as a long commitment rather than a spot trade, which means it does not contaminate the rest of the medium with continuous price discovery. You do not see real-time tradable share prices for individual essays. The medium stays cool, and capital condenses at the subscription edge.

Bandcamp does the same thing for music. Wikipedia does it through donations rather than per-edit pricing. Patreon does it for creators. Each of these platforms has intuitively positioned the condensation points where capital can enter without heating the entire medium. None of them has tried to put a market price on every social act. They have all understood that the substrate must stay cool for the platform to keep generating gravity.

The lesson SocialFi missed is that capital and cool media are compatible, but only on specific terms. The capital has to be local, infrequent, illiquid in the right ways, and structurally separate from the bulk of social acts. It has to condense, not saturate. The moment you try to make every act capitalisable, you have replaced the social medium with an economy. And economies do not produce the kind of accumulating, ambiguous, participation-driven meaning that cool media generate.

What Comes Next

There is a generation of projects that quietly figured this out, often without naming it in these terms, and the pattern is beginning to look stable. They tend to share a few characteristics. The base layer is a social or cultural artefact whose meaning accumulates through participation.

If there is a single sentence that captures the lesson of SocialFi’s collapse, it might be this. Liquidity is heat. Adding it to a cool medium does not make the medium more efficient. It changes the medium into something that can no longer do the thing the original was good for.

The interesting design space, then, is not how to put a price on every social act. It is the much harder, much more specific question of where exactly to let capital condense inside a cool substrate without disturbing it. That question has barely been explored. SocialFi failed to ask it, because it was too busy trying to dissolve everything into a market. The next wave, the one that actually works, will probably be the one that takes McLuhan seriously enough to leave most of the medium alone.

NFTs as the Sharper Case

If SocialFi shows what happens when you build a hot medium and call it social, NFTs show something more revealing. They show what happens when you take a deeply cool medium that has worked for centuries and watch it heat up in real time.

Collecting is one of the oldest forms of cool media. Browsing record bins, stopping in antique shops, trading Pokémon cards on a school playground, and showing a stamp collection at a club meeting are all activities where the object itself carries only half the meaning. The other half is built through participation, recognition, the slow accumulation of a collection over the years, stories attached to specific pieces, and the conversations in which someone notices what you have. The value of a collected object is low-resolution, ambiguous, and context-dependent. That is not a deficiency. It is the mechanism that makes collecting a cultural practice rather than a transactional one.

The early NFT waves, in 2020 and early 2021, still carried some of this logic. CryptoPunks began as an insider thing, almost a joke among crypto natives, with unclear meaning and a value that came from shared culture rather than from a price feed. Early Art Blocks drops had a similar texture. There were forums, Discord channels, places where people talked about individual pieces, traded stories, and built community. The collecting was cool. The artefact was unfinished. It needed participation to mean something.

Then the marketplaces matured, and the thermal drift began, in a form so extreme it deserves to be studied as a case in itself. OpenSea made floor prices visible everywhere. Rarity tools quantified every trait into a numerical score. Real-time charts made every collection look like a stock ticker. Sniping bots made human reaction times irrelevant. Wash-trading volume became a status signal. Each of these features, taken individually, was a rational market optimisation. Collectively, they tipped the medium from cool to hot at a speed no cultural practice had ever experienced before.

The result was almost painfully consistent with what McLuhan would have predicted. The collector became a trader. The trader became a bot operator. The bot operator reduced the artefact’s meaning to a single floor-price number, and once that number fell, nothing was left. The communities that had formed around early collections did not mature into a richer cultural form. They evaporated the moment the market stopped moving. This is not how collectors behave. Collectors stay when prices fall. They keep talking, trading, and tending to their collection. What happened to NFT communities after the crash was not a collector exodus. It was proof that there were no collectors left. Only market participants disguised as collectors stayed, and when the market closed, the veil came off.

This is an even sharper illustration of the medium thesis than SocialFi. SocialFi was a new medium that was hot from its birth. So its failure could plausibly be blamed on novelty or speculation cycles. NFTs took a medium that had worked for centuries, survived wars, technological revolutions and changes in taste, and destroyed its working dynamics in barely thirty months. The medium had worked. The platforms broke it; not by neglect, but by relentless optimisation. Each step made the experience more precise, more measurable, and more efficient. It also made it slightly less collectable, until at some point, there was nothing left to collect.

The cautionary lesson is that thermal drift is not slow. It can happen on a timescale measured in product cycles, especially when the platform layer is built by people who do not recognise that they are operating inside a cool medium. The temptation to add another metric, another leaderboard, and another real-time price feed is constant. Each of these additions raises the temperature by a small amount that feels harmless in isolation. But the cumulative effect is the disappearance of the practice that the platform was supposed to host.

That’s it for today,
Anderl

---

Disclaimer: This piece was originally published on Anderl’s Substack.

We will be featuring good writing and writers we love from time to time. If you have recommendations, send them our way.

Token Dispatch is a daily crypto newsletter handpicked and crafted with love by human bots. If you want to reach out to 170,000+ subscriber community of the Token Dispatch, you can explore the partnership opportunities with us 🙌

📩 Fill out this form to submit your details and book a meeting with us directly.

Disclaimer: This newsletter contains analysis and opinions of the author. Content is for informational purposes only, not financial advice. Trading crypto involves substantial risk - your capital is at risk. Do your own research.